Where is the growth? And how risky is it?

Written by Nigel Davies on 15 January 2013

Welcome to 2013! And welcome to the first blog from Wyn River Limited.

Wyn River is a new niche advisory firm of highly-networked independent associates focused on improving business performance in Central and South East Europe and the Commonwealth of Independent States. We advise business owners across the region about their business plans, debt and equity funding solutions as well as cashflow and profit improvement strategies. We also advise stakeholders on project finance and restructuring issues in the region. We apply our knowledge and connections to help businesses from outside the region to assess new market opportunities and find excellent local partners.

Our first blog is dedicated to growth.

It is recognised that growth is unlikely to be a major feature of the UK or Eurozone economies in the next few years as they face the twin challenges of a global slowdown and the need to impose various levels of austerity to bring large national debt burdens within reasonable limits. There is a helpful infographic on GDP growth just issued by Euromonitor which demonstrates this.

Central and South East Europe, Russia and the rest of the Commonwealth of Independent States offer a very large aggregate population with a growing middle class as well as a well-educated and often price-competitive workforce.

Although there are opportunities for growth in several Eastern European and Central Asian markets, we have to admit that some economies in this region are also facing slowdown due to the lack of demand from their Western neighbours. There are many other external factors to consider. Bulgaria, for example, may be one of the poorest countries in the EU, but it will benefit from around €10 billion of EU structural fund support between now and 2020, it has a very stable currency board in place as well as a competitive 10% flat tax policy. Certainly China and other parts of Asia are keen to access oil and gas and other natural resources in countries like Russia, Kazakhstan and Turkmenistan. In many of those countries there are joint venture opportunities for Western businesses in the supply chain to share know-how on new technologies and how to improve efficiency in a sustainable way. This includes the reformation of the Silk Route to link Europe to Asia, this time using rail as a cost effective transport alternative to hundreds of years of animal-led convoys. Resource rich countries such as Russia and Kazakhstan are looking to diversify their economies to improve urban development and infrastructure, and move into renewable energy to avoid a full dependency on the carbon economy, associated price volatility and the potential “green energy only” demands from future importers. The European Bank for Reconstruction and Development, the largest investor in the region, has just issued an interesting report card on the progress Russia is making with its diversification agenda.

Wyn River does not claim unique insight here. Several other organisations share this view and we are happy to reference their work. Deloitte just issued a UK CFO survey which confirms the lack of traditional market growth opportunities as a bigger concern than margins and access to credit (read that report here), Grant Thornton issued some useful ideas on how businesses should approach international opportunities (read their report here) as well as a guide on the BRIC economies, where I wrote the section on Russia when I was working for them. (Read their BRIC report here). There is lots of good material here which I don’t want to repeat. An additional endorsement for this approach comes from the UK government who have a specific initiative running now focused on Central and South East Europe. UKTI’s logic can also be applied to countries such as Turkey, Russia and Kazakhstan who offer good growth prospects. This blog is not aimed exclusively at UK business, but let’s face it, German, French, Italian and Austrian businesses seem to have recognised and reacted more to the Eastern European opportunity years ago, with the exception perhaps of the UK oil and gas majors. In my BRIC piece for Grant Thornton I said it is time to reassess the "risk/reward" trade-off if businesses are serious about finding new growth markets. Yes there are corruption issues, but often no worse than other parts of the world. I argue that if you adopt a zero-tolerance policy towards bribery and corruption from the outset, find local advisers who share your values, and cross-reference ideas and contacts across the embassies, agencies and international financial institutions, you should be in good shape to leverage your commercial advantages. The World Bank issues an annual guide on the ease of doing business in most countries in the world. The 2013 report can be accessed here.

We can help to connect businesses to the right people to talk to and de-risk the process, especially when corporates are driving growth from their head office with less local bottom up data and cultural reference points. At a minimum our local Wyn River associates can add their own connected inputs to your decision making and refer you to well-placed professional firms and other entities who can conduct the financial, commercial, legal and counterpart due diligence you need to get comfortable with your growth agenda.

Contact me directly on nigel.davies@wynriver.com to discuss your needs in more detail, give me feedback on this blog or to suggest your own priority topics for future blogs.